Minimum wages in an automating economy

Abstract

We explore the suitability of the minimum wage as a policy instrument for reducing emerging income inequality created by new technologies. For this, we implement a binding minimum wage in a task-based framework, in which tasks are conducted by machines, low-skill, and high-skill workers. In this framework, an increasing minimum wage reduces the inequality between the low-skill wage and the other factor prices, whereas the share of income of low-skill workers in the national income is nonincreasing. Then, we analyze the impact of an automating economy along the extensive and intensive margins. In a setting with a minimum wage, it can be shown that automation at the extensive margin and the creation of new, laborintensive tasks do not increase the aggregate output in general, as the displacement of low-skill workers counteracts the positive effects of cost-savings. Finally, we highlight a potential trade-off between less inequality of the factor prices and greater inequality of the income distribution when a minimum wage is introduced into an automating economy.

Risk of Automation of Jobs in Colombia

“…While this is a well-documented subject, there exists significant heterogeneity in the phenomena of job substitution and automation. Much of the empirical research has concentrated on the effects of technology in the labor markets in advanced countries such as the United States, the United Kingdom, Japan, Germany, Spain, Austria, among others (Frey and Osborne, 2017;Hawksworth, Audino and Clarry, 2017;Dómenech et al, 2018;Aghion, et al, 2020;Acemoglu and Restrepo, 2020;Illéssy, Huszár, and Makó, 2021;Boustan, Choi and Clingingsmith, 2022;Gravina and Pappalardo, 2022;Eckardt, 2022;Lorenz, Stéphany and Kluge, 2023).…”